Public Finances Continue to Deteriorate

The increase in domestic debt with terms of less than one year and the growing rise in interest rates are some of the threats that Costa Rica's public finances continue to face.

Thursday, September 20, 2018

According to the 2017 Annual Report by the General Comptroller of the Republic, between 2016 and 2017 the percentage of domestic debt with a term of less than one year increased from 15% to 18%, the variable rate rose from 12% to 20%, and the interest rate in dollars grew from 19% to 24%.

See "The unstoppable public debt"

In regards to this topic, economist and former vice president of Costa Rica, Luis Liberman, explained to Nacion.com that " ...The haste to obtain resources has already led the Government to increase its raising of resources through promissory notes, which are very short-term debts, 15 days, one month or two months, which are acquired with public institutions. Generally, these promissory notes have a lower rate but reach maturity all the time and if at any time an institution withdraws the money this gets the government in trouble."

For his part, Melvin Quirós, Director of Public Credit at the Ministry of Finance, explained that " ... due to the recurring fiscal deterioration, expectations of an increase in interest rates and uncertainty about a permanent solution, the Government has had to resort to issuing treasury bills."

See also "Costa Rica: Public Finances Deteriorate Further"

Regarding the exchange rate and the debt, the Comptroller General of the Republic points out, in its "2017 Annual Report" that " ...In relation to the foreign exchange risk, investors' preferences for dollar-denominated securities meant that by the end of 2017, the composition of domestic debt continued to increase its exposure to foreign currency risk.  Considering the balance of domestic liabilities only, the percentage of debt in dollars went from 19.3% in December 2016 to 24.1% in December 2017 and, by including the external debt that is agreed in currencies other than the colón, it can be seen that 40% of total obligations are exposed to changes in the exchange rate."

See Annual Report 2017.

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More on this topic

El Salvador: Moody's Improves Risk Outlook

March 2020

The rating agency kept the country's debt rating at B3, but decided to change the outlook from stable to positive, arguing that the government's liquidity risks have been substantially reduced.

The affirmation of El Salvador's B3 sovereign ratings reflects high public debt ratios and a growing interest burden, the rating agency said.

Honduras: Public Debt Up 3%

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At the end of the third quarter of the year, the total public debt of the country's Central Administration amounted to $11.002 million, 3% more than that reported in the same period of 2017.

During 2018, the total public debt balance of the Central Administration of Honduras reached US$11,002.8 million, which represents an increase of 0.13% with respect to the Second Quarter of 2018.

El Salvador: Moody's Downgrades Rating to B1

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The government's inability to stop the growth of debt in the context of low economic growth and a high fiscal deficit is the reason for the reduction in the rating.

From a press release by Moodys:

New York, August 11, 2016 -- Moody's Investors Service has today downgraded El Salvador's issuer and debt ratings to B1 from Ba3 and placed the ratings on review for further downgrade.

Costa Rica: Juggling to Alleviate Fiscal Deficit

October 2015

Refinancing loans and selling debt to China are part of the measures the government intends to implement in order to try to control the growing fiscal deficit without putting pressure on interest rates.

At the same time as announcing a reduction in the policy rate to encourage a decline in the interest rates of banks and financial institutions, the government is seeking other alternatives to avoid upward pressure in their search for resources to finance a growing fiscal deficit.

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